Ukraine cuts key interest rate amid receding inflation risks

By bne IntelliNews April 21, 2016

The National Bank of Ukraine (NBU) cut its key lending rate from 22% to 19% on April 21 in the first reduction since September, and encouraged hopes of further cuts if recent disinflation holds and the International Monetary Fund (IMF) resumes its blocked $17.5bn credit programme.

The cut came unexpectedly, with no economists in a Bloomberg survey predicting the
move. However, the NBU said it was made possible by "a significant easing in risks to price stability - inflation was lower than the central bank expected in the first quarter", according to a statement on the regulator's website.

"Should risks to price stability abate further, and if Ukraine secures the successful completion of the second review under the [IMF] Extended Fund Facility Arrangement, the NBU may move ahead with monetary easing," the NBU said in a statement.

Reiterating its 2016 inflation goal of 12% and 8% by the end of 2017, the NBU said the "key risk now is a delay in restarting cooperation with the International Monetary Fund".

Consumer-price growth slowed in March to the lowest level in 1 1/2 years, while the appointment of a new Ukrainian government under Prime Minister Volodymyr Groysman on April 14 has helped calm weeks of political turmoil.

For its part, the IMF said it is ready to resume its cooperation with Ukraine once the new government affirms the policy goals of its predecessor. So far, two tranches totalling almost $3.4bn have been withheld since September.

However, the fund's continuation of the bailout programme first requires the approval by the parliament in Kyiv of 19 outstanding law bills, which President Petro Poroshenko said earlier he hoped would be passed by April 22.

While the new Finance Minister Oleksandr Danylyuk said the next $1.7bn tranche could arrive in May, analysts say it is unlikely that the government will see any fresh cash before the third quarter.

Speaking to media on April 21, NBU governor Valeria Gontareva said an IMF mission was expected to arrive in Ukraine in the coming days.

Related Articles

Ukraine places $3bn in 15-year Eurobonds at 7.375%

Ukraine has placed $3bn in 15-year Eurobonds at 7.375% per annum, Ukrainian President Petro Poroshenko said during a meeting with international investors in New York on September 18. "Ukraine has ... more

Iran introduces its own rating system for banks

Governor of the Central Bank of Iran (CBI) Valiollah Seif has announced that his institution is to launch a national rating system for banks, Iran Labour News Agency reported on September 17. ... more

Kazakhstan to issue Islamic bonds worth $300mn in 2018

Kazakhstan will issue Islamic bonds, or Sukuk, worth $300mn in 2018, the Astana Times reported on September 15 citing Kazakh president Nursultan Nazarbayev’s ... more